CALLFORM

Cooling measures (ABSD, TDSR & LTV) are here to stay for now, and decoupling is one of the methods for couples (or multiple owners) to reduce ABSD payable when buying their 2nd property.

By decoupling, one party will take over the full ownership of the existing property, and the other party is “freed” to purchase another property at zero/reduced ABSD.

But decoupling does not always make economic sense.

In this article, we will go through the costs and savings incurred during decoupling, followed by an example assessing if decoupling makes economic sense for a couple planning to buy a second property.

For the purpose of this article, “Seller” refers to the individual transferring or selling the shares of the existing property to the other owner. The other owner taking/buying over the shares will be called the “Buyer”.

Prerequisites for Decoupling

Before you decide if decoupling works for you, you need to assess if you can perform decoupling.

Type of Property

HDB

Decoupling (or as HDB terms it, resale part-share) is not allowed for married couple.

The resale part-share is allowed for the transfer of flat ownership between parents and children or buying over of ex-spouse’s share.

If you would like to find out more, you may refer to this article: Change or Transfer of HDB Flat Ownership Within Family Members.

Private Residential Property

In general, decoupling is allowed on the private residential property without much restriction. A case where decoupling may not be allowed is when one of the parties is going bankrupt.

Utilisation of CPF

Very often, CPF is used to finance a property purchase (including private property).

When CPF is utilised to buy and finance the existing property, after selling or transferring of shares of the current property, the CPF monies used (including accrued interest) have to be returned to the CPF account of the “Seller”. The shortfall in the funds returned to CPF will be settled by the sales proceed.

For “Seller” whose age is 55 and above, the monies refunded from the “sale” of your earlier property will be used to meet your Full Retirement Sum in your Retirement Account (RA). And only the remaining monies in your Ordinary Account (OA) can be used to purchase your next property.

Details can be found here: https://www.cpf.gov.sg/Members/Schemes/schemes/housing/private-properties-scheme

Outstanding Mortgage

The “Buyer” have to finance the balance mortgage by himself/herself based on her income if there are outstanding loans on the existing property.

Seller Stamp Duty

If the “Seller” transfers the property within four years of the purchase, he/she is liable to pay the Seller Stamp Duty.

Costs & Savings of Decoupling

Buyer Stamp Duty

The “Buyer” has to pay the Buyer Stamp Duty when taking over the shares of the property from the “Seller”.

Why not transfer the shares over at a very low price to minimise the Buyer Stamp Duty?

You will be very disappointed.

The Buyer Stamp Duty is calculated based on the agreed purchase price or value of the property, whichever higher.

Payment Schedule% of Stamp Duty
First S$180,0001%
Next S$180,0002%
Next S$640,0003%
Remaining Amount4%
Not forgetting, the “Seller” is required to pay the Buyer Stamp Duty on his/her next purchase of the property.

 

Legal Fees

Two sets of legal fees will be payable.

The “Buyer” has to pay for his/her conveyancing fees.

The “Seller” has to engage a separate legal firm to handle the transfer/sale of his share of the existing property to the “Buyer”.

Additional Buyer Stamp Duty

After decoupling, the “savings” would be the reduced/zero ABSD payable by the “Seller” when he/she purchase the next property.

The ABSD which would be payable when the “Seller” buys his 2nd property without decoupling is as followed:

Rates on or before 5 July 2018

Note: There will be a transitional provision for cases where an Option to Purchase (OTP) has been granted by sellers to potential buyers on or before 5 July 2018, and this OTP has not been varied on or after 6 July 2018. For such cases, the current ABSD rates, instead of the revised ABSD rates, will apply if the OTP is exercised within 3 weeks of this announcement (i.e. exercised on or before 26 July 2018) or the OTP validity period, whichever is earlier.

Buyer's Citizen TypeRate of 1st Property Purchase2nd Property Purchase3rd and subsequent Property Purchase
Singapore CitizenNot Applicable7%10%
Singapore Permanent Resident (SPR)5%10%10%
Foreigners & Non-Individuals15%15%15%

Rates on or after 6 July 2018

Buyer's Citizen TypeRate of 1st Property Purchase2nd Property Purchase3rd and subsequent Property Purchase
Singapore CitizenNot Applicable12%15%
Singapore Permanent Resident (SPR)5%15%15%
Foreigners20%20%20%
Entities25%25%25%
DeveloperRemittable 25% + Non-Remittable 5%

See footnote1
Remittable 25% + Non-Remittable 5%

See footnote1
Remittable 25% + Non-Remittable 5%

See footnote1
Queens Peak

Case Studies (based on applicable ABSD after 5 July 2018)

Now that we have established the costs and savings involved in decoupling, we can now look into the process of assessing if decoupling will help our client, Mr and Mrs Tan in reducing their cost in purchasing their 2nd property.

Mr Tan is a Singaporean and Mrs Tan is a Singapore Permanent Resident. They currently own a 3-Bedroom condo (3BR) under joint-tenancy and is looking to buy a 1-bedroom apartment (1BR) for investment. Their 3BR has an estimated value of SGD 2 million, and the one bedroom condo at SGD 1.2 million.

Scenario 1: Mr Tan & Mrs Tan proceeds to purchase the 1BR without decoupling

They would have to pay Additional Buyer Stamp Duty of SGD 120,000 on the acquisition of the 1BR. The Buyer Stamp Duty would be SGD 32,600. The total stamp duty payable would be SGD 152,600 if they were to buy the 1BR without decoupling.

Calculation:

ABSD: SGD 1,200,000 X 15% = SGD 180,000

BSD: SGD 1,200,000 X 4% – SGD 15,400 = SGD 32,600

Total Stamp Duty Payable = SGD 120,000 + SGD 32,600 = SGD 212,600

Scenario 2: Without decoupling, Mr. Tan buy the 1BR (himself only)

By buying the 1BR without decoupling and Mrs. Tan, Mr. Tan would be paying ABSD of SGD 144,000 (12% ABSD applicable for Singaporean buying his/her 2nd property) and BSD of 32,600. The total stamp duties payable is SGD 176,600.

Scenario 3: Mr Tan takes over the 3BR & Mrs Tan buy the 1BR

By taking over 50% of Mrs Tan’s share of the 3BR, Mr Tan has to pay the Buyer Stamp Duty of SGD 24,600.

Calculation:

BSD: SGD 1,000,000 X 3% – SGD 5,400 = 24,600

After decoupling, Mrs. Tan is liable to pay ABSD of SGD 60,000 and BSD of SGD 32,600.

Calculation:

ABSD: SGD 1,200,000 X 5% = SGD 60,000

BSD: SGD 1,200,000 X 4% – SGD 15,400 = SGD 32,600

With decoupling, having Mr. Tan takes over the 3BR and Mrs. Tan buys the 1BR, the total stamp duty payable is SGD 117,200.

Scenario 4: Mrs Tan takes over the 3BR, and Mr Tan buys the 1BR

If Mrs Tan were to take over the 3BR, the buyer stamp duty payable is SGD 24,600 and ABSD payable is SGD 50,000.

Calculation:

BSD: SGD 1,000,000 X 3% – SGD 5,400 = SGD 24,600

ABSD: SGD 1,000,000 X 5% = SGD 50,000

As for Mr. Tan buying the one bedroom condo, he has to pay buyer stamp duty of SGD 30,600.

Calculation:

BSD: SGD 1,200,000 X 4% – SGD 15,400 = SGD 32,600

The total stamp duty payable in this case will be SGD 107,200.

Recommended Course of Action

By decoupling and having Mrs Tan taking over the 3BR and Mr Tan buying the 1BR, they would pay the minimum amount of SGD 107,200 in stamp duties if they choose scenario number 4. Hence, it is advisable for Mr Tan and Mrs Tan to perform decoupling to acquire their 2nd property.

Total Stamp Duty Payable for:

Scenario 1: SGD 212,600

Scenario 2: SGD 176,600

Scenario 3: SGD 117,200

Scenario 4: SGD 107,200

Artra at Redhill

What are the potential pitfalls in “decoupling”?

Assuming that Decoupling is the Best Method

Decoupling does not always end up with the minimum duties payable.

In the case of Mr and Mrs Tan, if the 1BR costs SGD 700,000. The best option is to purchase under Mr Tan’s name without decoupling.

In general, decoupling makes economic sense when buying a second property which has a higher value than the 1st property. Or in cases where the value of the 1st and 2nd property is close to each other.

Regardless, it is best to get a professional to help you determine if decoupling saves you money.

Calculating the Stamp Duty Wrongly

Very often, mistakes are made in the calculation of the stamp duties payable. You can familiarise yourself with the stamp duties payable by reading this article: What is Buyer Stamp Duty and Additional Buyer Stamp Duty?

And when mathematics is not your cup of tea, it is better for you to seek professional help.

Also, do take note that the seller stamp duty is payable if the transferred of shares of the property is within the holding period of 4 years.

26 Newton Condo near Orchard Road

Bankruptcies

The problem will arise if the transferor becomes bankrupt within 5 years from the date of transfer. The creditor may have the right to seize the transferred shares of the property.

Mortgage Loan

There are some risks that the bank may not be keen to grant the loan after “decoupling”. However, this risk can be easily mitigated by first approaching the bank to seek their financial support before performing the transfer.

Compare home loan

Conclusion

Before you proceed to “decouple”, it is wise to spend some time to work out the different scenarios and assess which scenario works best for you. You may want to get yourself familiarise with the stamp duties payable (namely, buyer stamp duty, additional buyer stamp duty & seller stamp duty) when buying and selling the properties. Other fees where you may want to take note of are legal fees, agent’s fee, mortgage stamp duty, CPF legal fee and valuation fees.

Once again, we hope this article would be useful to you. As always, if you have any feedback or require help to determine if decoupling works for you, just drop us a note at [email protected] or via the contact form below. Our trained staff will be happy to assist you.

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(65) 6100 1344 (Phone)



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Note: The above article is intended to provide general information. Although we endeavour to ensure that the information contained herein is accurate, we do not warrant its accuracy or completeness or accept any liability for any loss or damage arising from any reliance thereon. The information herein should not be treated as a substitute for separate professionall advice concerning particular real estate situations. If you would like to obtain advice, please do not hesitate to get in touch with us at 61001344 or [email protected]